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With the economy deteriorating rapidly and hyperinflation at four-digit figures, as soon as he took office in 1989, President Carlos Menem imposed an austerity program and launched the reforms of the Argentine economy which, although initially unpopular, came to be appreciated when inflation, raging at a rate of 5,000 per cent annually, was brought down to single-digit figures and the peso achieved parity with the dollar - the main reasons for Menem's reelection in 1995.
A year ago, with only one month in office, President Fernando de la Rua appeared to be following Menem's strategy of hitting the ground running by presenting a package of reforms opposed by the unions, and signaled the firmness of his position by taking away from the unions control of a $360 million workers' healthcare fund which had been a source of cushy jobs and easy money for labor leaders. But there was no follow through. Instead of pursuing changes at the core of Argentina's economic structure, de la Rua and his Economy minister Jose Luis Machinea, who quit under pressure on March 2, nibbled it around the edges while a full-blown recession took center stage after almost three years of economic decline.
Last week, the new Economy minister, Ricardo Lopez Murphy, said it would cut nearly $2 billion from this year's budget in order to remain within fiscal targets set by the International Monetary Fund last year in a $40 billion rescue package and to stop Argentina from running into serious problems servicing its foreign debt, totaling $124 billion. However, he vowed that the country's decade-old "convertibility system", which pegs the peso to the dollar under a currency board, would remain untouched.
Lopez Murphy's plan hits everybody in the most sensitive areas. Provincial governments, which are generally employers of last resort, particularly in the poorer northern provinces, will not be receiving $660 million in federal funds. Not only will this cut fuel an increase in the already high unemployment but will dry up bonus payments for teachers. Higher education will take a direct $361 million hit on an already insufficient yearly budget of $1.8 billion. This and another $600 million in proposed cuts in other areas of education caused the resignations of three cabinet members from the president's own party (key members from the other party in the governing coalition followed suit). Cuts in retirement payments, already low, and the proposed application of a Value Added Tax (VAT) in the 15 percent range to everything in sight, from books, newspapers and TV cable service to movie, theatre and soccer games tickets, have angered people at large.
These are only some examples of an across-the-board austerity plan. The crucial question is whether President de la Rua, who has squandered his initial political capital throughout a year of indecision and half-measures, will be able to hold the political fort while his Economy minister's plan is carried out. Menem was able to do that because he started out with belt-tightening measures as soon as he was installed and, whatever his other shortcomings, he had political charisma (he still has), something nobody has accused de la Rua of having.
Conscious of the problem he faces, the president has reached out for help from Domingo Cavallo, Menem's Economy minister (still remembered as Menem's "miracle man"), appointing him cabinet chief, a post that constitutionally has prime-minister potential for a take-charge personality like Cavallo's-spawning rumors that Lopez Murphy might not be Economy minister for long.
Meanwhile, popular reaction to these measures is already shaping up. All three major labor federations, which seldom are in agreement, have announced a general strike for April 5 and 6. Teachers are carrying out a two-day strike this week, University professors are planning a strike that would go on for an indeterminate period. Students, always the spearhead of political movements in Latin America, are also planning protest actions.
After having failed in governing Argentina, the military have been self-confined to their barracks since the early eighties and have shown no interest in playing a role in politics. But the military hate disorder. If the harsh economic austerity plan were to cause great public disturbances-as it well might-the civilian establishment close to the military (a mixture of right-wing, law-and-order-above-everything advocates) will do what it has always done: prod them with talk of their role as "custodians" of the laws and the constitution and, perhaps, get them to act if the going gets really bad.
This would be something nobody in Latin America needs.
Claudio Campuzano (claudio-campuzano@hotmail.com) is U.S, correspondent for the Latin American newsweekly Tiempos del Mundo and editorial page editor of the New York daily Noticias del Mundo. He writes weekly for World Tribune.com